Portfolio letter to Mortgage Intermediaries

The FCA has issued a Portfolio Letter to mortgage intermediaries setting out its expectations for mitigating identified risks to customers.

While this letter was issued to firms identified as being under the “mortgage intermediary portfolio” business model it has been published so that all firms working as mortgage intermediaries, such as general IFAs, can have access to, and act upon, it.

In 2016 the FCA’s Mortgage Market Study identified three potential areas of harm being:

  • “Rules and guidance may be a barrier to developing tools that help consumers choose a mortgage;
  • Consumers looking to buy an execution-only mortgage (i.e. without advice) are diverted to advice and execution-only sales channels are not always easy to use;
  • Many consumers are overpaying for their mortgages, even when they get advice.”

You can refresh your memory of this here.

The FCA has identified, as part of its more recent supervisory work, the following key drivers of harm:

  • “Firms advise their customers to purchase an unsuitable product which does not meet their needs. Firms should be able to clearly demonstrate why their customers have been advised to take a product. The customer should also understand the reason for the recommendation.
  • Customers potentially pay excessive fees and charges for the service they are provided. There is also a risk that customers are unclear about the fees they are paying and the implications when they are added to the loan.
  • The risk of fraud, both in terms of firms having inadequate systems and controls and risk management frameworks (leading to them being used to facilitate financial crime), and firms not being fully aware of the threats of cyber-attacks (leading to consumer data being compromised).”

They are prioritising supervisory work on Second Charge and Lifetime Mortgages.

Firms that are active in either or both of these markets need to read the letter.

In the letter they also cover mortgage fraud, cyber risks, governance and oversight (particularly resourcing) as well as including a Brexit signpost and a reminder of the SMCR changes.

The key message is that firms in this market should review their business and make appropriate changes to reduce harm.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

All firms that act as mortgage intermediaries need to review the content of the letter and act appropriately to reduce potential harm to customers.

Action Required By You

  • Read the letter;
  • Note the content;
  • Follow the content;
  • Discuss implications with the management body;
  • Make appropriate changes;
  • Ensure the discussions and actions are minuted;    
  • Contact ATEB if you need further clarification or assistance.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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